IRS Says You Owe Money

If the IRS sent you a "notice of tax due" letter, it means that the IRS thinks you have not paid the total amount of taxes that you owe.

Whether or not you think you owe taxes or disagree about how much you owe, it is important to act quickly. Notices from the IRS usually include deadlines. Pay attention to them. You can lose legal rights—and have to pay more money—if you are late.

Do not put off fixing your tax problem. The IRS will add interest and penalties if you wait too long.

If You Disagree

If you don’t think you owe money or if the amount you think you owe is different from what the IRS says, you have the right to have your case reviewed by an IRS manager or to request a collection due process hearing.

To tell the IRS that you disagree, you can:

call or write to the IRS office listed on the notice of tax due letter or

Sometimes the IRS will let you pay the full amount you owe in monthly payments over a longer period of time. This is called a payment plan. It is also sometimes called an installment agreement. There are different types of installment agreements, with different rules.

If you qualify for a “streamlined” installment agreement, and you probably won’t have to provide financial information to the IRS. You can apply online, over the phone, or by mail.

Here are some of the basic rules:

You must owe $50,000 or less in combined individual income tax, penalties and interest.

You must be up-to-date with all of your tax returns.

You must be able to afford monthly payments that will pay off your debt in 72 months or less.

If you are self-employed, you must be current on your quarterly estimated tax payments.

If you owe more than $10,000, the IRS will probably file a tax lien as a condition of your installment agreement. The IRS can file a tax lien if you owe less than $10,000, but they usually don’t. (See the Liens section on this page to find out more.)

If you can’t afford a monthly amount that will pay off your debt within 72 months (6 years), you can still apply for an installment agreement. A “partial pay installment agreement” is based on what you can afford.

You will have to give the IRS information about your income, expenses, and assets. You can’t apply online for this type of installment plan. You must be up-to-date on your tax returns. Self-employed people must be current on their quarterly estimated payments.

Do not agree to a higher monthly amount than you can afford. If you default (don’t pay), the IRS will charge a fee to reinstate the plan. If the IRS says you must pay more than you can afford, call Vermont Legal Aid for help at 1-800-889-2047.

If your income goes down after you set up an installment plan, you should call the IRS right away and ask for a modification (a change in the amount you have to pay). Don’t wait until you default (miss a payment).

If you do not make your payments, the IRS may levy (take) your property or file a lien on your property (if there is not a lien already). Read below to find out more about levies and liens.

If you owe more than $50,000, or if you need a Partial Pay Installment Agreement, you will probably need to complete an IRS Collection Information Statement. The IRS will tell you whether you need to use the short form (Form 433-F) or the long form (Form 433-A).

If there is reasonable doubt about how much tax you owe, if you can't pay the full amount or if paying the full amount will create a financial hardship, the IRS may consider an “offer in compromise.”

An offer in compromise allows you to pay less than the full amount you owe. But you will be expected to pay the most you can afford. In some cases, you may be required to pay more than you believe you can afford. The IRS will consider your ability to pay, income, expenses and the equity you have in a home or other property.

Here are some of the basic rules:

You must be up-to-date with your tax returns (even if you didn’t have to file in the past).

You will be charged a fee, unless you meet the low-income guidelines.

You will need to prove your income, assets and expenses with documents.

Make your offer.You'll find step-by-step instructions and all the forms for submitting an offer in the Offer in Compromise Booklet, Form 656-B.

Choose a payment option.The amount of your first payment will depend on your offer and the payment option you choose.

If you need help.Call the Vermont Low-Income Taxpayer Clinic at 1-800-889-2047.

If your offer is accepted:

You must file all required tax returns and make all required tax payments for the next five years. If you don’t file a tax return, or if you have a new IRS debt, your offer will be cancelled. You will not get your money back.

Any refunds due to you for the calendar year that your offer is accepted will be used for your tax debt. Refunds do not count towards your offer amount.

Federal tax liens are not released until you have met your offer terms.

Some offer information is provided for public review at IRS offices.

If your offer is not accepted:

You may appeal within 30 days using Request for Appeal of Offer in Compromise, Form 13711.

If you need all your income to cover your necessary living expenses, you can ask the IRS to put your account into a temporary hardship status. This is called Currently Not Collectible (CNC). You can stay in this status until your financial situation improves, or until the IRS asks you to update your financial information.

To apply for CNC, call the number on your IRS letter. You will have to give information about your income, assets, and expenses. The IRS might ask you to fill out a collection information form. This is not always required. The IRS will tell you whether you need to use the short form (Form 433-F) or the long form (Form 433-A).

While your account is in CNC status:

Interest and penalties will be added to your debt each month.

Your tax refunds will be applied to your debt.

If your income increases, the IRS may take your account out of CNC, and ask you to pay your debt.

The IRS may put a lien on your property. Generally, IRS files a lien if your balance is over $10,000.

You will receive annual reminders from the IRS showing how much you owe, but as long as you are in this category, the IRS will not ask you to pay.

Your debt may eventually become uncollectable and be written off. There is a limit on the time the IRS has to collect from you. Generally it is 10 years, but some things can extend the time.

When the IRS puts a lien on your property, it does not mean that they have taken it. It means that they have put a claim on it so that they can make sure they get your debt paid back. Liens are filed in the town land records, even if you don’t own any land.

The IRS must give you notice at least 5 days before they file the lien.

The IRS must take the lien off of your property within 30 days after you pay your tax debt, interest and penalties.

IRS liens last for 10 years. The expiration date is on the lien.

If a tax lien will make it harder for you to pay your debt, you can object to the lien. You will need proof that the lien will hurt your ability to pay. For example, provide a copy of your employer’s policy that employees with liens will be fired.

A lien will keep you from selling or transferring your house easily. If you are selling your house, the IRS can get money from the buyer before you are paid.

A lien will also affect your credit rating, making it difficult to buy other property.

How to Appeal an IRS Lien

There are 3 ways to appeal a lien:

You can ask an IRS manager to review your situation.

You can request a Collection Due Process hearing with the Office of Appeals. You must request this hearing by the date on your lien notice. If your request to remove the lien is unsuccessful, you will have 30 days to object to that decision.

You can also try to work with the IRS so that your debt is paid off some other way.

A levy is different from a lien. When the IRS levies your property, it means they have taken it. The IRS can levy any property that you own, including wages and social security benefits.

Levies must be released when:

Your debt becomes too old to collect.

The levy creates an economic hardship.

A levy can be put on part of your property because the value of your property is more than the debt.

Releasing the levy will help the IRS collect the debt.

The IRS can’t take any of your property to pay your taxes if you have an installment agreement and you are making your monthly payments. If the IRS decides not to accept your installment agreement, they can’t take your property for 30 days after they tell you their decision not to accept it or during the time that you are appealing an IRS decision.

How to Appeal an IRS Levy

There are 3 ways to appeal a levy:

You can ask an IRS manager to review your situation.

You can request a Collection Due Process hearing with the Office of Appeals. You must request this hearing by the date on your levy notice. If your appeal of the levy is unsuccessful, you will have 30 days to object to that decision.

You can also try to work with the IRS so that your debt is paid off some other way, or so your account is placed in hardship status.

How to Get Help

If a levy is causing you a hardship, call the IRS and tell them that. You may have to answer questions about your income, property, and living expenses. If you have a hardship and the IRS doesn’t release the levy, call the Vermont Low-Income Taxpayer Clinic at 1-800-889-2047. You can also call the IRS Taxpayer Advocate Service at 1-877-777-4778.